What Is Financial Stability?

An OFB reader recently reached out with us with a question that we want to pose to all of you guys today. Yes, even you typing away at your keyboard with Cheetos fingers. So here’s the question: What does it mean to YOU to be financially stable? As our reader said in her email, “We use that phrase a lot, and I’d be curious to know what it means to other people/you guys.” Such a great question, right? More specifically, we’re talking about financial stability at this point in our lives — the here and now.

Everyone seems to be seeking after financial stability, but each of us has a different definition of what that entails. So what makes you feel stable or secure? What does it take for you to think, “We’re doin’ all right.”

Financial Stability in the OFB Household

Sally feels financially secure as long as we can afford to keep her favorite foods in the house: egg salad, strawberries, and milk.

Joanna’s Thoughts

First, I think a lot of financial security and peace comes from having full-time jobs. But that alone doesn’t define financial stability. Saving money each month also contributes to financial security, knowing that we’re adding to our bank account on a monthly basis. And having an emergency fund in place is like having that back-up pacifier in the diaper bag. If all hell breaks loose when we’re out in public with Sally, I know I can whip that thing out as a last resort. Similarly, if we lose our jobs and our condo burns to the ground, that emergency fund will be a safety net. Lastly, living without debt is the final piece in creating a financially secure environment. Oh, and having a refrigerator stocked with Diet Coke.

Johnny’s Thoughts

For me, financial stability is being able to meet a budget and consistently put money into savings and retirement on a monthly basis. I think financial stability’s a state of mind, instead of a number or a class. And it’s not living in a state of wants. It’s being comfortable with the budget that allows you to live within your means. Financial stability can be achieved with a $50,000 salary. Conversely, someone who makes $200,000 a year but never feels like they have sufficient to cover their expenses ain’t on the financial stability boat.

So that’s what financial stability is to us. And now… yup, it’s your turn! What does financial stability mean to YOU?

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26 Comments

The ultimate financial stability to me is when passive income exceeds my regular spending and savings activity–aka being in a position to retire if you wanted. But we are talking about the here and now… I would say something along the lines of “consistently being able to cover your debt obligations, meet or exceed your savings goals, and continue to live below your means.” The faster you can eliminate any debt the easier it will be to fulfil the other two.

I like that definition, TT. And I really, really like your version of financial stability that includes passive income exceeding regular spending and savings. I wouldn’t mind if that day comes sooner rather than later :).

I think it would be having 6 months of expenses saved in an emergency fund. I wasn’t too worried about having that much in an emergency fund, but have been thinking recently that I’d feel better if we had that set up!

I think financial stability means not worrying about how you’re going to pay your bills every month. Instead, a budget is created and I know exactly how much comes in and goes out. It also means growing my savings account and getting rid of debt. I’m very close to being credit card debt free (next on my list is student loan debt free). Having the freedom to do what you love without worrying about money all the time is the key to financial stability.

I agree with both money stepper and TT: Financial Stability is when your passive incomes exceeds your monthly expenses you are free to walk away from work if you want to, then you are financially stable. I would add to this :

1. Debt Free ( All Debt)
2. Emergency Fund ( 6 months to 1 year of all expenses, including DCA investing)
3. Ability to live on 50% of your salary
4. Investing the surplus (50%) of salary

Sorry Joanna, but I have to agree with Johnny. To me, financial stability is paying bills on time and being able to consistently put money away into savings. My personal goal is to be a month ahead on bills, or live on last months paychecks.

Financial stability to me means being able to financially handle what life throws at me. So this is more than just being able to meet my basic needs – it means having that safety net for emergencies, having long term savings (planning for retirement) and being able to save for long term goals (like, if I wanted to buy a house, have a family etc.). In a nutshell, not having to worry about the future!

Since becoming debt free (including the house) in 2007 (age 38). We have done a few things that help us feel financially secure.

1. We keep $25k in our checking account and $35k in our “Emergency Fund” money market. This seems dumb as it doesn’t earn really any interest. But it is not there to earn interest.

2. We live off my wife’s paycheck, we save my enter paycheck. I put 11% into a Roth 401k and save the rest into diversified mutual funds.

3. I constantly work at lowering our “regular” bills. I changed every bulb to an LED over time. We cut cable and use Netflix/Hulu Plus/Amazon Prime. I constantly am looking to lower our cell phone bill. Currently use Ting.com with 5 phones (1 dumb and 4 smart). Our bill is $82 + taxes per month.

4. Continual spring cleaning. So much stuff enters our house. It is unstoppable with 3 kids. So we are constantly thinning the heard of stuff.

5. Have a plan. We have something called “operation downsize” that could be used for job losses or if we just get tired of the daily grind of both working. Down house-ing, down car-ing, Potentially moving to a cheaper/warmer climate. There are no bad ideas, but not all ideas will ever be implemented. But you should discuss things.

6. Look for “investments” that are not stock, bonds, mutual funds, etfs, cash. This is part of diversification. We did a commercial building investment and a rental property investment looking for “passive income” alternatives.

These may not apply to everyone’s life stage, but getting to debt free can certainly change your life and open up some doors you never thought would open.

Wow! Your list is fantastic – and inspiring, after reading thru your list I have to ask you about #3 and how you said your cell phone bill with 5 phones (4 of them smart) is only $85/month. You mention Ting.com what is your service like? If you don’t mind my asking what state do you live in (we’re in rural Iowa and reception can be an issue). Lowering our Cellphone bill is something I would love to look into – currently we pay $110ish/month and that’s with just 2 phones (a dumb and a smart) Thanks!

We live in Fargo, ND. Not exactly the hotbed of cell service. Ting has been awesome. Check the Sprint coverage in your area. You may have great 3G service where you need it. My sister had 2 phones on Verizon. Bill was almost $140/month. On Ting it is less than $40/month. Ting has great calculators. You can get referred and get $25. They will pay you to break your contract. Worth checking into. They are a great company.

Thank you Wade. I told my husband about this last night, and now we are seriously considering it – if we do, I’ll come back here and ask you for the “refer a friend” link so you can get that credit they offer.
And Slinky, hearing seconds, and all the positive things I’ve been reading about Ting, are just making it seem a better and better idea to switch. If you don’t mind my asking where do you live? How is the service where you are located? (I think that is our last hangup, we’re not sure about the service coverage – also data usage/coverage…actually *that* is probably the biggest issue holding us back, anything to say on that area?)

I’m in southeastern Wisconsin and my coverage is just fine. They use the Sprint network so you can easily check their coverage maps as well. I changed to Ting from Sprint, so other than paying less money and the few hours it took for my number to port over, there’s been no noticeable difference at all.

The only catch I’m really aware of is that you don’t have data when roaming. At home, it’s never been an issue at all. I did run into this problem exactly once when using the GPS to head back to the hotel from the Grand Canyon. As soon as we got a bit closer to civilization, I found a signal just fine, so it wasn’t even really a problem. If I hadn’t, I’d have simply stopped at a McDonald’s or somewhere with wifi to donwload the directions or self navigated using the cached maps. But like I said, it happened exactly once and it wasn’t even that big of a deal.

Financial stability for me right now is being able to pay our bills & debts & save a little money while doing so. In the next couple years it will hopefully be having no debts & saving much more money & especially for our future. In a couple more years after that it would be great if my husband could support our household expenses so we can start a family & I can stay home.

I figure that Johnny makes the key point as far as defining the term “Financial Stability” – a state of mind. I feel very fortunate to say that our family has had Financial Stability for many years now – yes, during the 2008 global financial meltdown, and even during the 7 months (years ago) when I was unemployed after a major company layoff.. Financial Stability to me means not worrying about debt but knowing that, one way or another, one’s debts are getting gradually paid down. Financial Stability means that money is being put away (saved and/or invested) towards future wants / needs. Financial Stability means knowing that we have a plan to cope successfully should life throw us a financial curve ball from time to time. Financial Stability means that our basic needs are being acceptably met with what we have, regardless of how little that might be. Financial Stability is being able to sleep well each night, not worrying about the almighty buck, not sweating the small stuff, but knowing that in life it’s all -just small stuff.

“It’s being comfortable with the budget that allows you to live within your means.” Absolutely. And I agree, a lot of that is more about what you do with what you make than how much you make. Though there are definitely limits to how far frugality can go, at some point, you just need to make more money.

One reaches financial stability when one’s salary covers one’s expenses with at least 20% of it going to savings, investments and/or retirement.

One reaches financial independence when:
1) passive income covers all expenses AND
2) you can still make a hefty contribution to savings and retirement, or you already have enough savings and retirement to cover any conceivable crisis and retire fully by age 65.

OR

When one has enough money socked away to cover expenses for the rest of one’s foreseeable life.

I think I’m more literal than you guys. Financial stability to me means maintaining the status quo. So, enough to pay the bills, handle the occasional expense that pops up and a little bit of spending money. Here’s how I look at things ->

Hmm good question. I guess I feel financially stable because I’m debt free, save 30% of my take home pay for retirement and general savings, and have my six month emergency fund about 65% completed. I live below my means.
BUT-I could be more financially stable by having a fully funded emergency fund, be saving 15% to retirement (less than 15% is going to retirement presently), and be super proactive and constantly planning and saving with sinking funds for Christmas, car replacement, vacation, etc. I’m not THAT organized yet!
I certainly feel financially stable, but could certainly feel more financially secure.

Financial stability is a status achieved by an individual or a family where they have a stable adequate income as well as stable adequate resources to cover unexpected expenses affordable and accessible goods and services and safe, affordable housing.

Take Your Shoes Off, Please

Hey, stranger! We’re Joanna and Johnny (and Sally). You can guess who's who. We’ll show you that normal people can figure this money stuff out by sharing our own journey. Because believe us — if we can figure this crap out, anyone can. And it all starts with a budget.

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